Tensions brew between Tim Hortons franchisees and parent company

Ongoing tensions between Tim Hortons franchisees and the chain’s parent company have spilled over into the United States, where a dissident group of franchisees has filed a new lawsuit.

The Great White North Franchisee Association’s U.S. branch, a group claiming to represent at least half of the owners of Tim Hortons restaurants south of the border, said Thursday that it is suing Restaurant Brands International, which has headquarters in Oakville, Ont., over a contract clause forcing all disputes to be handled in a Miami court.

“RBI claims to be a Canadian-based company to avoid U.S. taxes but yet when franchisees attempt to pursue legal claims against its various brands, including Tim Hortons, RBI takes a conflicting position and claims to be a Miami, Fla.-based company,” the association’s lawyer Robert Einhorn said in a statement Thursday.

“It uses its forum selection clause in its franchise agreements to force all litigation in its favoured court, the federal court located in Miami. These contract disputes are based on state law and properly belong in the state courts.”

The group, which has vocally opposed RBI strategy, argues that instead, owners should have their dispute handled in the franchisees’ home state.

The company said Thursday it cannot comment on the specifics of the ongoing legal matter, but added the allegations “are completely false.”

“We’re proud of the way we conduct our business, and nothing will distract us from our primary focus, which is serving the needs of our restaurant owners and guests,” it said in a statement.

The company has ties to Miami because it also owns Burger King, which has its headquarters in the city.

The GWNFA U.S. group’s litigation follows months of public tension between the GWNFA’s Canadian franchisees and the parent company over cost-cutting measures, a $700-million renovation plan and delays in the delivery of supplies.

The group has also backed a franchisee’s class-action lawsuit filed in Canada over the company’s alleged improper use of a national advertising fund.

The tensions pushed the franchisee advisory board of Tim Hortons to write to the GWNFA last month pleading with the group to stop airing their complaints publicly because they claimed it was damaging the brand and affecting owners’ livelihoods.

It prompted BMO Capital Markets analysts to downgrade RBI’s stock to market perform status from outperform and came as a survey BMO conducted found Canadians are choosing to frequent Tim Hortons less often as a result of the tension between franchisees and RBI.

“We believe that continued negative press on Tim Hortons, like an additional class action lawsuit, could cause ongoing pressure on the Tim Hortons same store sales results,” said BMO analyst Peter Sklar in a note Thursday.

“In addition, we also believe that further negative developments on the deterioration of the franchisee/franchisor relationship (as is implied in the class action lawsuits) may cause delays in the U.S. and international development plans for Tim Hortons.”

However, Einhorn is hoping the lawsuit will help the GWNFA U.S. win another suit it plans to file that accuses RBI of improperly using money from its advertising fund to curb overhead expenses, which he says are unrelated to advertising and the promotion of the brand.

He plans to file the U.S. advertising fund lawsuit after the Canadian case connected to allegations of the company’s improper use of its $700 million Canadian advertising fund wraps up. The GWNFA is seeking $500 million in damages for that suit, which is based on franchisees contributing 3.5 per cent of their gross sales to the fund.

The GWNFA wrote to Navdeep Bains, the federal innovation minister earlier this year, alleging that RBI failed to live up to promises made under the Investment Canada Act in 2014. Bains’s office has said it is looking into the claim.